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China Labor Costs

June 24, 2010

We ran a story this week mostly dealing with raw material price increases as a factor that is pushing up the cost of home furnishings product this year. The verdict: Price hikes are coming if they aren't here already.

An item that we didn't mention is that manufacturers in Asia, the source of much of our furniture, are seeing more pressure in labor costs. Several major news outlets have reported Chinese worker protests have yielded wage gains, many in the technology sector, but in other industries as well.

I spoke to Dan Masters, president of Hekman, about two weeks ago. He had this to report:

"We've been on conference calls over the last two weeks with all the suppliers who are getting this ripple effect related to the fact that there's been a couple of major work stoppages in China," Masters said.

"What's occurring is those work stoppages are proving to be relatively effective from the perspective of the worker in that they are garnishing pay increases," he said. "All of our suppliers are ringing bells right now saying ‘I can't retain people. I'm losing as many people as I can hire because I'm not paying enough.'"

Labor is 15% to 20% of the component cost of furniture, he estimated.

Labor costs would also climb as the yuan rises in value, which it is starting to do gradually as Chinese leaders are allowing the currency to float. It all adds up.

Not having enough workers also means it takes longer to get your orders from China.

It's no wonder that Indonesia has been a big up-and-comer in furniture sourcing over the past year and half. Hekman has moved its principal sourcing to Thailand and Indonesia, and Sunny Designs is sourcing several new bedrooms from Indonesia for upcoming introductions.

"We're going pretty heavily into Indonesia," said Hokeun Lee, vice president of sales for Sunny Designs. "I mean, they've got a lot of raw materials, they've got a lot of natural resources, labor's still pretty cheap, and there's just lot of factories there and you know, all the big boys are there."